Time to Get Short: Part II

Signs of a top are accumulating. Here's survey of the market's happy mood
from Wednesday's Financial Times (love
the first line):

Irrational equanimity is back. Not only are developed market stocks back
to pre-Lehman levels, but investors' comfort levels are in a zone not seen
since the eve of the credit crisis in early 2007. Apart from US stock indices,
this shows up in the price investors will pay to insure against volatility,
with the CBOE Vix index down to its lowest since the crisis eve of July 2007,
and in sharp reductions in cash cushions held by institutions.

Merrill Lynch's widely followed survey of fund managers released yesterday,
finds that...a majority consider themselves overweight in equities, only
37 percent believe credit default risk to be "above normal" and a net 71
percent believe that corporate earnings will rise 10 per cent or more during
the next 12 months. A similar survey of 100 institutional investors by Citigroup
found a consensus expectation that the S&P 500 will gain some 11 percent
for the year.

A few years ago, a question was posed to Elliott Wave International's president
Robert Prechter:

"Under the Wave Principle, what is the most important thing to watch other
than price?"

Prechter answered via his monthly Elliott Wave Theorist: "Volume."

High trading volume is a chief characteristic of a healthy trend, bullish
or bearish. The DJIA has rallied for over a year now off its March 2009 low,
but volume has consistently been lacking. We've shared our thoughts on this
fact many times with our subscribers.

"Many market watchers said that the low volume in December was merely seasonal
and not bearish. But volume in January has been no higher than it was from
December 1 to December 22, and it is still lower than October's, which was
lower than September's, and so on." - Bob Prechter, Elliott Wave Theorist,
January 2010.

Even lately, low volume has persisted. Here's what is notable, though: The
market's down days have generally been on higher volume than the up days.
This could mean investors are gradually leaving the market.

John Rubino is author of Clean Money: Picking Winners
in the Green Tech Boom (Wiley, December 2008), co-author, with GoldMoney's
James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday,
January 2008), and author of How to Profit from the Coming Real Estate
Bust (Rodale, 2003). After earning a Finance MBA from New York University,
he spent the 1980s on Wall Street, as a currency trader, equity analyst and
junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and
a frequent contributor to Individual Investor, Online Investor,
and Consumers Digest, among many other publications. He now writes
for CFA Magazine and edits DollarCollapse.com and GreenStockInvesting.com.